Budget 2023: TDS Threshold Removed on Online Gaming by Finance Minister For online games, it is proposed to provide for TDS and taxability on net winnings at the time of withdrawal or at the end of the financial year: Budget Document

Gaming was recognized as one of the potential sectors for job creation. Furthermore, the ministry of broadcasting announced the AVCG Centre of Excellence in 2020 in an attempt to cement the gaming sector as a major wealth generator for the country. The ministry of broadcasting was allocated a sum of Rs. 3980.77 crore by the government last year.

The availability of smartphones and the onset of pandemic acted as the catalyst for the online gaming sector. During the presentation of the Union Budget 2023, finance minister Nirmala Sitharaman announced certain changes in the custom duty on the import of inputs for mobile phone manufacturing as well as the lithium-ion batteries. The gaming sector also witnessed changes made in the budget.

"For online games, it is proposed to provide for TDS (tax deducted at source) and taxability on net winnings at the time of withdrawal or at the end of the financial year. Moreover, TDS would be without the threshold of Rs. 10,000," the budget document stated.

"For lottery, crossword puzzle games, etc, the threshold limit of Rs. 10,000 shall continue but will apply to aggregate winnings during a financial year,"

Online gaming has created its own niche as it continues to be one of the preferred leisure time activities of people. Not limited to the youth, the gaming sector is enjoyed by middle-aged and elderly demographic of the country. The gaming sector of India stood at $2.6 billion in 2022 is expected to grow at a compound annual growth rate of 27 per cent to reach $8.6 billion by 2027.

"With the introduction of these new provisions, govt is trying to make sure that the winnings are taxed in full and there is no leakage of taxes. However, the gaming industry in that case will pose with manifold challenges from compliance perspective. The newly introduced section is applicable from July 1, 2023," said Atul Puri, managing partner and co-founder, SW India.

"The proposed changes make the entire reporting mechanism fairly airtight for the exchequer. Being a micro transaction based platform, removing the Rs. 10,000 limit would have a significant impact on WinZO's universe of 100Million casual gamers. Our players typically spend Rs.300 per month and out of the 100 Million users, more than 99.9 per cent of our players have winnings of less than Rs. 500 per month or Rs. 6000 per annum. We will now be liable to deduct taxes for these small ticket participants as well increasing the compliance requirement for the companies. Introduction of 'Net Winning' in place of just 'Winning' is definitely a respite and more practical from a player's standpoint. The two big wins for the sector out of this announcement is the much needed clarity on the TDS, and a separate recognition and treatment of online gaming as a category clearly differentiated from gambling or betting. Paavan Nanda, co-founder, WinZO games.

The gaming start-ups are happy about the regulation of the space. However, the TDS imposed on the gaming sector would directly impact on the gamers and their winnings.

"It is a welcome move to define the future of the online gaming industry to remove the minimum threshold of Rs. 10,000 for TDS and to clarify taxability. The action will result in transparency, a clear legal identity, and standardized taxation for online gaming," said Sunil Yadav, CEO, PlayerzPot.

"The announcement of removing minimum threshold of Rs 10,000 for TDS on online gaming and providing clarity on taxability is a big step forward, however most esports games, like ours, don't have any money withdrawing system so these are applicable for the online gaming sectors which are into real money gaming," said Rohit N Jagasia, founder and CEO, Revenant Sports.

The Union Budget announced the setting up 100 labs for apps development using 5G services in engineering institutions as the Union government pushes for the development of the sector.

"Modifications to the TDS limit will impact the real money gaming (RMG) industry more than the e-sports industry. Since e-sports games majorly do not have a system of 'money withdrawal', TDS does not impact them. As for the RMG industry, the removal of TDS threshold is a bit debatable. Most forms of income in India is considered under the Rs.10000 TDS threshold. If we consider 'winnings' as 'income', then the threshold should remain the same," said Rohit Agarwal, founder and director, Alpha Zegus.

It remains to be seen how the TDS impacts gamers in the space.